Sunday, September 11, 2011

The Market Economy and its Enemies

Human beings are driven to improve their socio-economic circumstances. They utilise whatever resources of material and intellectual capital they have to address their condition of unlimited wants. They engage in economic transactions with fellow humans. Those who produce goods and services sell them to those who need them. A spontaneous order exists. And that is how Friedrich Hayek, the late Austrian economist, described the free market. Self-interest drives people in their quest to meet their needs, but the resources available to them are limited. Individuals or groups of individuals, therefore, must compete amongst themselves to provide the goods and services which others will want to own or consume.

In every sphere of human endeavour, sports, manufacturing, tourism, or entertainment, competition is the principal driving force. It is the fountain of human progress. Competition has positive consequences for the community at large. The goods and services presented offer the best available value for money. In other spheres, excellence is the result. In a free market businesses are productive, and consumption and output ever increasing. The rational point of departure for any government, therefore, should be to accept the reality of this spontaneous order when formulating policies to address national challenges.

Everyone intuitively accepts that economic transactions should not entail force or fraud. Government policies need to respect private property, freedom of exchange, and freedom to exercise personal choice. The basic principles of a free market are supported by findings published in the annual Economic Freedom of the World report. Using empirical evidence gathered in various countries, this report demonstrates the correlation between economic freedom and economic growth, with its concomitant benefits such as improved overall welfare of citizens.

But the free market has enemies:

Ideologues generally. Leftists, rightists and others situated at various points along the ideological continuum seek to impose their ideas on society at large. Government policy and legislative interventions become their means of achieving their social and political goals, and many of them believe that, irrespective of the consequences, the end justifies the means.

For example, in pursuit of National Socialism, Hitler precipitated the Second World War and exterminated millions of people. Stalin’s communist regime killed more than twenty million, more people than the total killed during World War II. Driven by the communist ideology, the Pol Pot regime massacred over a million people on the killing fields of Cambodia, and that of Mao Tse-tung killed an estimated one hundred million Chinese.

These tragedies are all a consequence of forcing people to conform to imposed ideological doctrines that are incompatible with the human instinct for freedom and personal choice.

Socialists and communists particularly. The doctrine of socialism/communism still persists despite the dramatic implosion of socialist systems since 1989; despite the declaration by the late leader of Communist China, Deng Xiaoping that “It is glorious to be rich” and his ushering in of the most radical free market reforms seen in the world in recent years; despite former communist and socialist countries of Eastern Europe adopting radical free market reforms, even, in some cases, a flat tax system, that have manifested in increased economic productivity.

Control freaks in government. People in power who purport to have all the necessary knowledge and wisdom to decide which policies are good for society at large. Who ignore that in the economic arena knowledge, specialised expertise and wisdom are dispersed among countless individuals in innumerable diverse enterprises which produce all sorts of different goods and services. They do not trust ordinary people to make rational choices in terms of their own individual circumstances, or the judgement of the countless individuals who face challenges and circumstances unique and distinct to them.

The assumption that government officials possess all knowledge is what Friedrich Hayek termed ‘the fatal conceit’. As long as there are people in South Africa who flounder under this belief, policies that are detrimental to the interests of society at large will continue to be enacted.

Statist business leaders and crony capitalists. People who do not like competition and rely on state patronage and the enactment of policies biased in favour of their business interests. Without state tenders, they would not survive. They curry favour with those in government and appoint onto their boards of directors individuals who have ‘connections’ with the ruling party. They hate free markets because they would be challenged to compete freely and fairly without the benefit of ruling party connections.

The free market has other enemies, but the above mentioned are the most destructive to the spirit of enterprise. The Concise Oxford Dictionary (10th Edition, 1999) describes ‘ideology’ as “A system of ideas and ideals forming the basis of an economic order or political theory”. The free market is neither an ideology nor a system. The free market is a spontaneous order; a manifestation of the spirit of enterprise that thrives in the absence of coercive government policies.

These words of British philosopher, economist and civil servant John Stewart Mill (1806-1873) encapsulate the meaning of a free market: “Over his own body and mind, the individual is sovereign … the only purpose for which power can be rightly exercised over any member of a civilised community, against his will, is to prevent harm to others.”